What Happened When Marissa Mayer Tried to Be Steve Jobs

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CreditIllustration by Matt Dorfman. Photographs by Getty Images.

By Nicholas Carlson

Dec. 17, 2014

Eric Jackson was sitting in his hotel room on Sea Island, Ga., watching his kids splash around in the pool, when he clicked “publish” on his latest blog post for Forbes.com. Jackson, an influential hedge-fund manager, had become fixated on Yahoo and the efforts of its chief executive, Marissa Mayer, to turn around the enormous yet floundering Internet company. It was July 21, 2014, almost exactly two years to the day since Mayer took over, arriving at Yahoo’s headquarters to an unfurled purple carpet and Shepard Fairey-style “HOPE” posters bearing her face. During those 24 months, Mayer eliminated dozens of products and rebooted others. She acquired 41 start-ups and even hired Katie Couric. But just one week earlier, Mayer announced the company’s lowest quarterly earnings in a decade. Jackson argued in his post that Yahoo no longer made sense as an independent entity. Instead, it might be a nice takeover target for one of the tech industry’s Big Four: Apple, Facebook, Amazon or Google.

Jackson’s conclusion wasn’t based simply on a discouraging quarter. It was a result of an eye-opening calculation he had performed — what’s known on Wall Street as a sum-of-the-parts valuation. Yahoo had a market value of $33 billion at the time, but that figure owed largely to its stake in Alibaba, the Chinese Internet conglomerate. According to Jackson’s valuation, Yahoo’s stake in Alibaba was worth roughly $37 billion. But if you subtracted that position, the entirety of Yahoo’s core business, all its web products and content sites, actually had a market valuation of negative $4 billion. A conquering company could theoretically buy Yahoo, sell off its Asian assets and absorb its business units free. This sort of sale would make a lot of money for Yahoo’s shareholders, Jackson wrote, even if it meant gutting the company and losing Mayer as C.E.O. after only two years.

A day after his post, Jackson received an unusual email. A major Yahoo shareholder had written to explain that he and many other investors, along with numerous employees and advertisers, had themselves become extremely frustrated with Mayer. Her turnaround plan, he said, had failed. The start-ups she acquired (most notably the social blogging platform Tumblr, which Yahoo bought for $1.1 billion in 2013) had failed to revive the company’s flat revenues of roughly $5 billion per year. Nor had Mayer succeeded, despite her track record overseeing Google’s search engine, in turning any of Yahoo’s many products into an industry leader. There were also a number of embarrassing management setbacks. The best outcome for Yahoo, the shareholder said, might be to sell the company.

One day later, on July 23, Jackson published a subsequent Forbes column that outlined parts of the shareholder’s argument. It went viral within the investment community, and in the following days, Jackson fielded several calls from other significant Yahoo investors, including managers of large mutual funds and hedge funds, who encouraged him to continue his campaign. Jackson’s own fund didn’t have the capital to mount an offensive, which would require buying a large stake in Yahoo and using it as leverage to effect changes within management. But he knew someone who might. Jeffrey Smith, who ran an activist fund called Starboard Value, had recently led such a campaign against AOL, leading the company to eliminate its money-losing local news network, Patch. While still on vacation, Jackson looked up Smith’s email on his Bloomberg terminal. Within hours, the two men were on the phone with a handful of associates from Starboard.

Jackson’s dire calculation of Yahoo’s value would soon be reinforced in the markets. On Sept. 19, Alibaba went public on the New York Stock Exchange, closing at $93.89 per share. But as Alibaba’s stock soared, Yahoo’s dropped, an indication that the market seemed to concur with Jackson’s analysis: Yahoo’s core business was worth less than zero dollars. A week later, Smith published an open letter calling for Yahoo to divest itself of its Alibaba assets, return the money to its shareholders and then merge with AOL. Redundancies could be eliminated, thousands of people could be fired and two former Internet superpowers would be downsized into a single and steady (if uninspiring) entity that sold ads against its collective online properties — news, blogs and Web products like email, maps and weather. “We trust the board and management will do the right thing for shareholders, even if this may mean accepting AOL as the surviving entity,” Smith wrote.

Dynamic and wildly profitable Internet companies like Facebook and Google may get most of the attention, but Silicon Valley is littered with firms that just get by doing roughly the same thing year after year — has-beens like Ask.com, a search engine that no longer innovates but happily takes in $400 million in annual revenue, turning a profit in the process. Mayer, who is 39, was hired to keep Yahoo from suffering this sort of fate. She believed it could again become a top-tier tech firm that enjoyed enormous growth and competed for top talent. And two years in, Mayer, who has a tendency to compare herself with Steve Jobs, wasn’t about to abandon her turnaround plan. On the afternoon of Oct. 21, she entered a web TV studio on Yahoo’s garrisonlike campus to present the company’s latest quarterly results. But the presentation effectively became a response to Starboard’s campaign. Even though Yahoo’s revenue had decreased in five of the past six quarters, Mayer attested that she had “great confidence in the strength of our business.”

Mayer’s resolve was consistent with other remarks she had made at the time, in both public and private. She highlighted various signs of promise. Yahoo’s mobile revenues, while still small, had doubled from the previous year. Display advertising revenue was down 6 percent, but the number of ads sold had actually increased by 24 percent. Yahoo was engaging more mobile users than ever before. Mayer didn’t bother talking about a potential AOL takeover. Her goal was nothing less than to return her company to the level of the Big Four. “We believe deeply in the future potential of Yahoo,” she said into the camera, “and the transformation we are pursuing to bring an iconic company back to greatness.”

Generally speaking, there are only a few ways to make money on the Internet. There are e-commerce companies and marketplaces — think Amazon, eBay and Uber — that profit from transactions occurring on their platforms. Hardware companies, like Apple or Fitbit, profit from gadgets. For everyone else, though, it more or less comes down to advertising. Social-media companies, like Facebook or Twitter, may make cool products that connect their users, but they earn revenue by selling ads against the content those users create. Innovative media companies, like Vox or Hulu, make money in much the same way, except that they’re selling ads against content created by professionals. Google, which has basically devoured the search business, still makes a vast majority of its fortune by selling ads against our queries.

Yahoo essentially invented the online-advertising business. In 1994, two graduate students at Stanford, Jerry Yang and David Filo, dreamed up a way to help early users navigate the web. They picked URLs that they each liked — beginning with around 100 links, including one for Nerf toys and one dedicated to armadillos — and listed them on a page called “Jerry and David’s Guide to the World Wide Web.” Within a year, their guide had to be divided into 19 categories (art, business, etc.) and was generating one million clicks a day. In 1995, the year Yahoo started selling ads, a former company executive estimated that the entire market was about $20 million. By 1997, Yahoo’s ad revenues alone were $70.4 million. The next year, they were $203 million.

To keep up with the growth, Yahoo quickly expanded beyond its directory to create a multitude of ad-supported products. The company aimed to be all things to all web users, and for most of a decade, it was a wildly successful strategy. In 1997, Yahoo added chat rooms, classified ads and an email service. In 1998, it introduced sports, games, movies, real estate, a calendar, file sharing, auctions, shopping and an address book. Even during the crash of the Internet bubble, a profusion of more traditional advertisers began to migrate from print to digital. The search business, in particular, was growing enormously. In 2002, Yahoo’s first full year monetizing search results with attendant ads, its revenues reached $953 million. In 2003, they eclipsed $1.6 billion. In 2004, they grew again to $3.5 billion. At its peak, Yahoo’s market capitalization reached $128 billion. It was $20 billion larger than Berkshire Hathaway, Warren Buffett’s holding company.

But this growth obscured a looming problem. While Yahoo was busy enlarging its portfolio, a new generation of start-ups was focusing on perfecting one single product. Soon enough, Yahoo was losing out to eBay in auctions, Google in search and Craigslist in classifieds. Then Facebook came along, replacing Yahoo as the home page for millions of people. The advertising dollars soon followed, and Yahoo’s revenue flattened. Between 2007 and 2012, the company churned through four C.E.O.s. The last of them, Scott Thompson, resigned in disgrace after five months when a large activist shareholder, Dan Loeb, published an open letter accusing him of fabricating a computer-science degree. After Thompson’s resignation, in May 2012, Yahoo was worth less than $20 billion on the public markets.

As an ad-supported business, Yahoo had only two ways to increase its revenue. It could display more ads by attracting more people to its products — a plan that would require inventing (or acquiring) new products, improving old products or some combination. Alternately, it could elevate ad prices by upgrading its content. In the opinion of Thompson’s interim successor, Ross Levinsohn, Yahoo would be best positioned as such a “premium” content company. In Levinsohn’s vision, Yahoo had fallen so far behind its competitors in building successful back-end technology, like real-time advertising auctions and search, that it should cede most of those businesses altogether. In the process, the company could also shed more than half of its 15,000 employees, and home in on its best asset: reach. Some 700 million people still visited Yahoo’s home page every month, making it almost seven times as large as the combined online audiences of The New York Times, The Daily Mail and The Washington Post. Levinsohn believed that offering this audience better content could raise Yahoo’s earnings by up to $2 billion in two years.

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But in Silicon Valley, the big money, and most of the prestige, is in making cool products. This is partly because product businesses, based on technology, are easier to scale than content ones, which require more human labor. It also reflects a cultural bias. The Valley’s greatest companies, from Hewlett-Packard onward, have been built around technological ingenuity. Tech executives know how to hire engineers and designers; they’re less adroit at recruiting editors or producers. When Loeb joined the Yahoo board, he recruited Michael J. Wolf, the former president of MTV, and the two consulted the noted venture capitalist Marc Andreessen about who should become the next C.E.O. of Yahoo. Andreessen made the case for a product executive.

Loeb’s decision was facilitated by another factor too. At the time, Google was valued at $250 billion; Facebook was worth $100 billion. Loeb opted to refashion Yahoo in their image. And so, in the spring of 2012, Loeb and Wolf began coveting a product C.E.O. The two board members asked the executive recruiter Jim Citrin of Spencer Stuart to approach Marissa Mayer, the wunderkind engineer who oversaw the user interface of Google’s search engine. Citrin cautioned that Mayer, who was among the first 25 people to join Google back in 1999, appeared to be a lifer. She had already earned hundreds of millions of dollars following Google’s 2004 I.P.O. and presumably had her pick of job opportunities. Still, he said he’d reach out to her.

Unknown to Citrin, however, Mayer was interested in pursuing her own turnaround of sorts. A couple of years earlier, she lost a turf battle to a powerful engineer within Google and was quietly reassigned to oversee Google Maps and other so-called local products. Mayer tried to spin the move positively, but that became harder after Larry Page, one of the company’s founders, regained the role of C.E.O. and removed Mayer from the group of executives reporting to him. According to one friend, Mayer had been observing the Yahoo vacancy for months. After Citrin called her cellphone, she told him she was interested.

The challenge of redirecting Yahoo was immense, but the next C.E.O. would have one tremendous advantage. In 2005, Yahoo invested $1 billion for a 40 percent stake in a little-known company called Alibaba. It turned out to be a remarkably prescient bet. Alibaba is commonly referred to as the Google of China, but it’s something more akin to the country’s version of Google, eBay and Amazon all in one — a web portal that provides e-commerce and business to business services. Weeks before Mayer was hired in July 2012, Yahoo sold half its 40 percent stake back to Alibaba for $7.1 billion. As a part of that deal, Alibaba was offered incentives to hold an initial public offering within the next few years. Suddenly the easiest way for Wall Street to make a bet on Alibaba — a hot start-up in a hot market, guaranteed an I.P.O. — was through an investment in Yahoo.

The arrangement ensured that Yahoo’s stock, for the next two years, would be tied to the performance of Alibaba rather than that of its own core business. This was a tremendous benefit to an incoming C.E.O., essentially offering a two-year air cover. Without having to manage the company’s stock price, inevitably one of a chief executive’s most distracting tasks, Mayer could focus on acquiring start-ups, jump-starting products and making strategic changes. Moreover, in two years she would be able to use the Alibaba cash to reinvest in her putative growth. When Citrin offered the job, she accepted.

Turning around a technology company has been historically rare. Tech companies invent new ways of doing things, but as they expand, often metastatically, they tend to shift their focus toward protecting their booming business rather than investing in new disruptive ones. Inevitably some newer company, usually financed by a wealthy venture-capital firm, beats them to it. It’s a cycle that happens in all industries, but everything moves faster in technology — too fast, usually, to allow for turnarounds. Steve Jobs may have resurrected Apple, and IBM was able to reinvent itself from a P.C. company into a business-services firm. But the next best example is probably Jeffery Boyd’s deliverance of Priceline — not exactly a titan of the industry. And his plan was almost a total restart, including dialing down the “name your price” pitch line and switching the company’s strategy from air travel to hotel bookings.

In order to revive Yahoo as a product company, Mayer would try to treat it as a giant start-up itself. Hours after entering Yahoo’s complex on the morning of July 17, 2012, she set up her computer to log into the company’s code base so she could personally make changes, much like the founder of a tiny tech firm might do. During her second week, she devised a weekly all-staff update, called “F.Y.I.,” that she would host at URL’s, a cafeteria on the Yahoo campus. (Employees pronounce it “Earl’s.”) She also tried to make the company a more desirable place to work. Yahoo employees, until then confined largely to BlackBerrys, were given iPhones or Samsungs as their company phones. All meals at URL’s would henceforth be free. For years, the partitions between the bathroom stalls didn’t go all the way to the wall. People hung toilet paper to try to fill the gaps. Soon after Mayer’s arrival, new partitions were installed.

Mayer saw her plan as a return, in a sense, to Yahoo’s original mission. Yahoo grew in popularity and value during the late 1990s, when it was the most user-friendly way to peruse the World Wide Web. Now, Mayer believed, it could ride the shift from P.C.s to smartphones and make the mobile web-browsing experience more user-friendly too. Yahoo, in other words, would need to become a really great apps company. Mayer wanted to narrow its product portfolio down to approximately a dozen from more than 100. She and her C.M.O., Kathy Savitt, did some market research and found a list of common user activities on mobile devices. She called this list the “Daily Habits,” and they included news-reading, checking weather, reading email and photo-sharing. Mayer was determined to ensure that Yahoo had the best mobile app for each.

This was going to be difficult. Previous Yahoo C.E.O.s had underinvested in mobile-app development, plowing money into advertising technology and web tools instead. A couple of days into the job, Mayer was having lunch at URL’s when an employee walked up to her and introduced himself as Tony. “I’m a mobile engineer,” Tony said. “I’m on the mobile team.”

Mayer responded to Tony, “Great, how big is our mobile team?” After some back and forth, Tony replied that there were “maybe 60” engineers. Mayer was dumbfounded. Facebook, for instance, had a couple of thousand people working on mobile. When she queried the engineering management department, it responded that Yahoo had roughly 100. “Like an actual hundred,” Mayer responded, “or like 60 rounded up to 100 to make me feel better?” The department responded that it was more like 60.

Companies like Facebook and Google are known for their fast-paced product updates. Yahoo, by contrast, was sluggish. Yahoo Mail, with its 30 billion emails a day, was arguably the company’s most important product. But despite the decline in desktop email use, Yahoo hadn’t built mail apps for smartphones. It had simply made the Yahoo Mail website usable on smaller mobile screens. Now an app was going to be designed for four separate platforms, including both Apple’s and Google’s mobile operating systems. During her first meeting with the executive in charge of Mail and Messenger, Vivek Sharma, Mayer said that she wanted it done by December. (Mayer declined to comment for this article.)

Mayer subsequently immersed herself in the redesign. Months into her tenure, she was meeting with Sharma’s team regularly in a conference room that started to look more like a design studio: projectors hung from the ceiling, rendering screens displayed on the wall. All around, dozens of foam core boards were pinned with ideas. Mayer would regularly interrogate designers about the minutest details of display and user experience. By early December, one day before Yahoo Mail was set to release, she convened a meeting at Phish Food, a conference room in the executive building of Yahoo’s campus, to talk about the product’s color. For months, the team had settled on blue and gray. If users were going to read emails on their phones all day long, the thinking went, it was best to choose the most subtly contrasting hues. But now, Mayer explained, she wanted to change the colors to various shades of purple, which she believed better suited Yahoo’s brand.

Some around the table were encouraged that their C.E.O. refused to release a product that she was less than fully satisfied with. If changing a few pixels led to an increase of 0.01 percent more users, that could translate to millions of dollars in ad revenue. Others, however, were visibly furious. According to one senior executive, Sharma’s body language changed the moment Mayer issued her request. He looked deflated. Altering the color of such an intricate product would require that members of his team spend all night adjusting colors in thousands of places. He slumped off and prepared to tell his staff the bad news.

In reality, Yahoo needed to move fast. And Mayer, who had begun her tenure while six months pregnant, tried to lead by example; she often slept only four hours a night and thrived on the breakneck pace. In her first months on the job, she unveiled a new version of Flickr, Yahoo’s photo-sharing social network, and a new Yahoo home page. Then Mayer overhauled the same products again, even as the company released new apps like Yahoo Weather and Yahoo News Digest. She outbid Facebook by a couple hundred million dollars to buy Tumblr. In the three quarters before Mayer’s arrival, Yahoo’s home-page team tested five new looks. In Mayer’s first two months, she prototyped 37.

Mayer also announced that she wanted to repair Yahoo’s search engine, her specialty at Google. “I don’t see a reason why our search share should fall below 15 percent, which is where it roughly is today,” she told employees at an F.Y.I. “I also don’t see a reason why it can’t climb back up to the 20 percent that we had.” According to one executive, she told a group of six vice presidents that she wanted a redesigned search product unveiled by the end of the year. “Tell me if you can do it,” she instructed the group. “Otherwise, I’ll find people who can.”

Largely owing to Mayer’s age and Google pedigree, her hiring had initially brought her overwhelmingly positive press during her first months at Yahoo. An article by Dan Frommer, an influential beat reporter for the industry news site ReadWrite, summed up a popular view: “This is a great move for Yahoo, which has stewed in mediocrity for years.” And by the beginning of 2013, just six months into the job, Mayer’s turnaround seemed to be ahead of schedule. In March, Yahoo’s stock rose to $22 per share, and Mayer added a tool to the company’s internal network that allowed employees to view their stock compensation.

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CreditIllustration by Matt Dorfman

At a board meeting in April, Mayer admitted that she had not yet identified a “breakthrough product,” but she reminded those in attendance that Steve Jobs didn’t come up with the iPod until five years into his second tenure at Apple. At an F.Y.I. around that time, she read a speech that Jobs gave to Apple employees at the beginning of his turnaround. Afterward, channeling Jobs, Mayer told hundreds of employees sitting at URL’s, “Our purpose is to inspire and delight our users, to build beautiful services, things that people love to use and enjoy using every day, and that’s our opportunity.” She continued: “We are the world’s largest start-up. We have $5 billion in revenue, but it can and will go in the blink of an eye if we don’t do our jobs.”

At Google, Mayer made her name as the executive who helped determine how products would look and work. She was less sure, however, about how to monetize them. At Yahoo, her most important hire was supposed to be someone who could figure all that out for her while also running Yahoo’s 1,000-plus-person sales force. Mayer did not have to search far. Within weeks of becoming C.E.O., she received an email from Henrique de Castro, the fashionable Portuguese president of Google’s media, mobile and platforms businesses. De Castro asked if she was available for a dinner and suggested a place. Mayer countered with a quieter venue and even arranged to get a table in the back.

Over dinner, de Castro impressed Mayer with his knowledge of Yahoo’s business and his specific proposals for building it. For several mornings in a row, the two exchanged emails to negotiate de Castro’s salary. Every night, Mayer would make an offer, only to wake up to a reply with a list of more conditions. Eventually de Castro negotiated himself a contract worth around $60 million, depending on the value of Yahoo stock. The Yahoo board was aghast, but Mayer argued that de Castro had to be compensated for the unvested Google stock he was abandoning. Anyway, she said, his talent ensured that Yahoo would reap many multiples of his salary in return. Henrique de Castro would pay for himself.

Mayer’s turnaround plan may have been predicated on building irresistible products to sell ads against. But hundreds of employees at Yahoo already worked on a side of the business that generated advertising revenues the more traditional way — by creating or licensing content, from beauty tips and Kardashian stories to daily videos on the financial markets and scripted comedies. For most of her first year at Yahoo, Mayer hardly paid any attention to this group, which generated $1.5 billion in annual revenue. This began to change in the spring of 2013, however, when Mayer attended the NewFronts, the annual event in New York where digital-content businesses display their coming programming for ad-agency buyers. Mayer kicked off the show by reading a corporate script from a prompter in an office-casual cardigan. Her talk felt woefully out-of-place at a splashy event whose other attendees included Ed Helms, the actor, and the Lumineers, the popular rock group. Still, the glamour of the event seemed to ignite Mayer’s interest in content, and within a month she asked that all programming decisions be run by her.

While some at the company favored upgrading Yahoo’s content, there was a fear that Mayer, who preferred to read Town and Country and wear Oscar de la Renta couture, might undermine the company’s middle-American brand. To some, she also seemed to lack the instincts of a media executive. During a breakfast with Anna Wintour, the editor in chief of Vogue, Mayer asked if there might be any partnership opportunities between the magazine and Shine, Yahoo’s site for women. According to Mayer’s own telling of the story to top Yahoo executives, Wintour looked appalled. Shine, with its 500 million monthly page views, appealed to a mass audience, not a narrow and affluent one. Nevertheless, Mayer quickly became infatuated with the idea that Yahoo could attract more sophisticated consumers. She began pushing for deputies to commission high-quality shows, the way Netflix was doing with “House of Cards” and “Orange Is the New Black.” One Yahoo executive was forced to explain that only a company that sold subscriptions to consumers could expect to make money off such expensive productions.

Reared in Google’s data-obsessed culture, Mayer tended to require countless tests about user preferences before making an important product decision. But when it came to media strategy, she seemed perfectly comfortable going with her gut. As a teenager in Wisconsin, she grew up sneaking into the living room to watch “Saturday Night Live” and occasionally recited sketches during meetings; in April 2013, Yahoo paid an estimated $10 million per year for the “S.N.L.” archives. Even though the actress Gwyneth Paltrow had created a best-selling cookbook and popular lifestyle blog, Mayer, who habitually asked deputies where they attended college, balked at hiring her as a contributing editor for Yahoo Food. According to one executive, Mayer disapproved of the fact that Paltrow did not graduate college.

Over the summer, Mayer greenlighted a plan to hire Katie Couric, the former anchor of “CBS Evening News” and former co-host of the “Today” show. As was the case with de Castro, Couric put the idea in Mayer’s head herself after the two shared a stage at an advertising event in the Turks and Caicos. Couric, who was then hosting a failing daytime talk show on ABC, told Mayer she wanted to do something big for Yahoo. Couric had previously worked with the company to produce a video series, “Katie’s Take,” in which she interviewed experts on topics like health and parenting. Despite Couric’s star power, users didn’t click on her videos, no matter how prominently editors positioned them on the page. Mayer ignored those metrics, and in mid-2013, she named Couric Yahoo’s “global anchor” in a deal worth more than $5 million a year.

Yahoo also lured a slate of expensive journalists to helm a series of new “digital magazines.” Mayer hired David Pogue, The New York Times’s gadget columnist, to be the editor of Yahoo Tech. She personally recruited Joe Zee, the creative director of Elle, telling him to consider Yahoo his “playground.” Mayer’s team asked the former Page Six editor Paula Froelich to run Yahoo Travel; the makeup star Bobbi Brown would oversee Yahoo Beauty. And Yahoo Shine, with its $45 million in yearly revenue, was shot down.

For the NewFronts event in June 2014, Mayer wore a designer dress and introduced a slate of buzzy new shows that she personally approved. Behind the scenes, though, her hands-on strategy was backfiring. “I just think it is a strategic mistake to take on big media where they are strongest,” Jonah Peretti, the C.E.O. of Buzzfeed, wrote me in an email earlier this year, referring to her focus on stars, scripted shows and glossy content. “Especially when there is a huge open space at the intersection of media and tech where it is hard for other big companies to compete.” Couric, meanwhile, had done several interviews with high-profile figures, including former Secretary of Defense Robert Gates, but Yahoo’s users weren’t clicking on the videos. In May, Yahoo Tech had just nine million visitors, placing it in seventh place among competitors, far behind rivals like CNET and Gizmodo. Yahoo Tech would sometimes go weeks without running a single ad. Yahoo Food was 12th in its market. Yahoo’s display advertising revenues dipped 7 percent during the second quarter of 2014.

One of the Yahoo board’s hesitations upon hiring Mayer was her relative lack of experience as a manager. While running search at Google, she oversaw 250 people. Mayer liked to spin her demotion by saying that it left her in charge of more than 1,000 staff members, but a majority of them were contractors. Either way, in her haste to turn around Yahoo, this relative inexperience began to surface. Some on the board had hoped that Ross Levinsohn would stay on as C.O.O., but any hope was jettisoned when Mayer asked him to fly from L.A. for a meeting and then stood him up. Mayer’s refusal to delegate became a sticking point, too. She insisted on personally approving every hire. One executive complained to a friend that Mayer spent as much time deliberating Yahoo’s parking policies as she did strategizing over the sale of its Alibaba stock.

Mayer also had a habit of operating on her own time. Every Monday at 3 p.m. Pacific, she asked her direct reports to gather for a three-hour meeting. Mayer demanded all of her staff across the world join the call, so executives from New York, where it was 6 p.m., and Europe, where it was 11 p.m. or later, would dial in, too. Invariably, Mayer herself would be at least 45 minutes late; some calls were so delayed that Yahoo executives in Europe couldn’t hang up till after 3 a.m. In theory, Mayer kept up with her direct reports through weekly individual meetings. In practice, she often went weeks without seeing them.

This delinquency eventually became a problem outside Yahoo. At a major advertising event in the South of France, Mayer sat for an interview with Martin Sorrell, the C.E.O. of WPP, one of the world’s largest agencies. In front of a filled auditorium, Sorrell asked Mayer why she did not return his emails. Sheryl Sandberg, he said, always got back to him. Later, Mayer was scheduled for dinner with executives from the ad agency IPG. The 8:30 p.m. meal was inconvenient for the firm’s C.E.O., Michael Roth, but he shuffled his calendar so he could accommodate it. Mayer didn’t show up until 10.

At F.Y.I.s, Mayer liked to tell employees that she believed in taking risks and that she was unafraid to admit failure. This philosophy worked well for web products but not for strategic hires. Despite the board’s urging, Mayer opted against vetting Henrique de Castro. As a result, she was unaware that de Castro had a poor reputation among his colleagues in Google’s advertising business. Many had derisively called him the Most Interesting Man in the World, in reference to the satirically fatuous spokesman for Dos Equis beer. De Castro had a tendency to make grand, awkwardly worded pronouncements. He was the inspiration for the Twitter handle @HdCYouKnowMe, which posted tweets that straddled the line between reality and parody: “To incentivize the sales force, you need to hit them with the carrot” and “Product is like snakes . . . slippery — we need someone with a big hammer.” De Castro’s new Yahoo colleagues got a full dose of his strange locution at the company’s annual sales meeting, in early 2013, when he berated his sales force with a rangy, pedantic speech. (De Castro did not respond to requests for comment.)

De Castro’s plan for growing Yahoo revenues focused on user-generated content, like the videos available on YouTube or Instagram. The only problem was that Yahoo did not have access to enough user-generated content to support this plan. (Its attempt to acquire Daily Motion, a YouTube clone, had fallen apart.) As Yahoo’s ad revenues continued to decline, de Castro began to alienate his staff and fellow executives. After one of his direct reports gave a presentation about Yahoo’s business in front of some 40 senior executives, de Castro humiliated the person, saying: “I think your strategy’s more of a fantasy. You make it up. You just make it up.” More important, advertising revenue declined in every quarter since he was hired. Within a year, Mayer had personally taken control of Yahoo’s ad team. De Castro would leave the company in January 2014. For about 15 months of work, he would be paid $109 million.

Mayer’s largest management problem, however, related to the start-up culture she had tried to instill. Early on, she banned working from home. This policy affected only 164 employees, but it was initiated months after she constructed an elaborate nursery in her office suite so that her son, Macallister, and his nanny could accompany her to work each day. Mayer also favored a system of quarterly performance reviews, or Q.P.R.s, that required every Yahoo employee, on every team, be ranked from 1 to 5. The system was meant to encourage hard work and weed out underperformers, but it soon produced the exact opposite. Because only so many 4s and 5s could be allotted, talented people no longer wanted to work together; strategic goals were sacrificed, as employees did not want to change projects and leave themselves open to a lower score.

One of the uglier parts of the process was a series of quarterly “calibration meetings,” in which managers would gather with their bosses and review all the employees under their supervision. In practice, the managers would use these meetings to conjure reasons that certain staff members should get negative reviews. Sometimes the reason would be political or superficial. Mayer herself attended calibration meetings where these kinds of arbitrary judgments occurred. The senior executives who reported to Mayer would join her in a meeting at Phish Food and hold up spreadsheets of names and ratings. During the revamping of Yahoo Mail, for instance, Kathy Savitt, the C.M.O., noted that Vivek Sharma was bothering her. “He just annoys me,” she said during the meeting. “I don’t want to be around him.” Sharma’s rating was reduced. Shortly after Yahoo Mail went live, he departed for Disney. (Savitt disputes this account.)

As concerns with Q.P.R.s escalated, employees asked if an entire F.Y.I. could be devoted to anonymous questions on the topic. One November afternoon, Mayer took the stage at URL’s as hundreds of Yahoo employees packed the cafeteria. Mayer explained that she had sifted through the various questions on the internal network, but she wanted to begin instead with something else. Mayer composed herself and began reading from a book, “Bobbie Had a Nickel,” about a little boy who gets a nickel and considers all the ways he can spend it.

“Bobbie had a nickel all his very own,” Mayer read. “Should he buy some candy or an ice cream cone?”

Mayer paused to show everyone the illustrations of a little boy in red hair and blue shorts choosing between ice cream and candy. “Should he buy a bubble pipe?” she continued. “Or a boat of wood?” At the end of the book, Bobby decides to spend his nickel on a carousel ride. Mayer would later explain that the book symbolized how much she valued her roving experiences thus far at Yahoo. But few in the room seemed to understand the connection. By the time she closed the book, URL’s had gone completely silent.

Mayer’s plan to restore Yahoo to the ranks of the tech giants had been premised on producing apps that hundreds of millions of people wanted to use. But as the Alibaba I.P.O. approached this fall, Yahoo’s new and updated apps weren’t getting enough traction. The digital-magazine strategy had not taken off, either; few of the strategic acquisitions seemed poised to break out; and Yahoo’s search business, which Mayer hoped to grow to a 20 percent market share, had dropped to around 10 percent. Mayer’s plan to sell a new kind of advertising in apps had been undermined by her trouble building relationships with clients, like Sorrell and Roth. Despite her efforts, Yahoo was still not growing. On July 15, the company reported dismal second-quarter revenues. Weeks later, Alibaba went public, and Jeff Smith pounced.

Since Starboard began its campaign to force an AOL merger, Mayer has been meeting with shareholders to reassure them about her strategy. Many public-company C.E.O.s become belligerent when activist investors come charging, but Mayer appears to be open to a compromise. Most Yahoo observers expect that, in the coming weeks, she will announce a plan to transfer almost all of the company’s Alibaba gains to shareholders while simultaneously resisting any merger with AOL. Mayer often compares her situation with the one Jobs inherited, and many expect her to insist that she needs at least the five years he received before his turnaround began to succeed with the release of the iPod.

But Mayer may not be able to buy herself the time. Major Yahoo shareholders have recently begun collaborating on a series of spreadsheets that calculate that AOL and Yahoo are worth between 70 and 80 percent more when combined than they are apart. Some investors are further attracted to the merger because it will bring AOL’s chief executive, Tim Armstrong, into Yahoo. Like Mayer, Armstrong made his career as an early Google employee — but he was in charge of its sales force. After a rough start, Armstrong has managed to get AOL’s stock going again, not by inventing some new consumer product but by optimizing its ad and media assets.

Armstrong, who has seen a version of this analysis, appears willing to consider a deal. Doing so, of course, would provide enormous personal benefit; Armstrong, who owns 5 percent of AOL, could stand to gain tens if not hundreds of millions of dollars. For Mayer, the calculus is less enticing. It’s unlikely that her personal turnaround plan included shrinking a $30 billion company into a $5 billion one, all to combine it with a $3 billion company and realize $1 billion in cost-savings.

But it’s also unclear what, if any, other options she has. Turning Yahoo into a growing products company and appeasing its activist shareholders are now almost mutually exclusive tasks. If Yahoo were to sell off its stake in Alibaba, it would become an entirely different sort of entity. Its market capitalization could drop to $5 billion from $50 billion. Efficiencies that once seemed small would become, in the language of investors, “material.” Starboard might pressure Mayer to sell Yahoo’s real estate or to lay off 10,000 employees. Acquisitions would get harder, as smaller bets would become much bigger relative to Yahoo’s market capitalization.

Aswath Damodaran, a professor at N.Y.U.'s Stern School of Business, has long argued about the danger of companies that try to return to the growth stage of their life cycle. These technology companies, he said, are run by people afflicted with something he calls the Steve Jobs syndrome. “We have created an incentive structure where C.E.O.s want to be stars,” Damodaran explained. “To be a star, you’ve got to be the next Steve Jobs — somebody who has actually grown a company to be a massive, large-market cap company.” But, he went on, “it’s extremely dangerous at companies when you focus on the exception rather than the rule.” He pointed out that “for every Apple, there are a hundred companies that tried to do what Apple did and fell flat on their faces.”

In many ways, Yahoo’s decline from a $128 billion company to one worth virtually nothing is entirely natural. Yahoo grew into a colossus by solving a problem that no longer exists. And while Yahoo’s products have undeniably improved, and its culture has become more innovative, it’s unlikely that Mayer can reverse an inevitability unless she creates the next iPod. All breakthrough companies, after all, will eventually plateau and then decline. U.S. Steel was the first billion-dollar company in 1901, but it was worth about the same in 1991. Kodak, which once employed nearly 80,000 people, now has a market value below $1 billion. Packard and Hudson ruled the roads for more than 40 years before disappearing. These companies matured and receded over the course of generations, in some cases even a century. Yahoo went through the process in 20 years. In the technology industry, things move fast.

“Sometimes,” Damodaran told me, “companies have to act their age.” For Yahoo, embracing its maturity means settling for a business that earns close to $1 billion in profit every year. It has outlasted other formerly iconic Internet portals, from AltaVista to Excite, and even dwarfs more recent web sensations like Myspace and Ask.com. For a company that started out as “Jerry and David’s Guide to the World Wide Web,” that’s not a bad way to grow old.

Correction:

An article on Dec. 21 about Marissa Mayer, the C.E.O. of Yahoo, misstated the terms of a 2012 agreement between Alibaba, the Chinese Internet conglomerate, and Yahoo. There were economic incentives for Alibaba to hold an initial public offering before the end of 2015; the deal did not include a requirement for Alibaba to hold one by 2014.